Deal Analysis

Here are the details of a local park for sale:33 sites, with only 16 being usable/complete.  The other sites are in various states of completion.  15 of the 16 sites are occupied…with only one being a site rental and the other 14 POH’s.  Lot rent for the single site is $250 per month which is at market.  POH rentals range from $450 to $700 per month for 1980’s to 2000’s homes, most being the newer end of the range.  The park is owned by siblings who have lost interest in owning the park and have never tried to sell off any of the POH to tenants or finish the completed sites.  The not so good…the park is set up with one well for every two sites, and one conventional septic for every four sites.  The park is located near a very good employment area driven by year round tourism, regional shopping, Wal-Mart, and low unemployment.  The sellers may being willing to carry a 2nd mortgage for down payment, and I was told the existing mortgage (not sure of the terms yet) is assumable.Would anyone consider this deal or are the negatives too big of obstacles?  Thanks for your honest opinions!

I think the price would be the deciding factor on if it was a worthwhile project or not.  With what you described, I would need a 13-14 CAP (due to a lack of upside) on current performance to even entertain something like that.  So, if the price is under 275k, maybe it’s worth the time to look into it further.  Otherwise, I think you can find something better.  

The well situation is a killer even thought our parks have them.     The idea of having numerous systems for water is strange–if somehow there was a change to one main state-approved well, maybe      POH require lots of time and how much per hour is your time worth??

The deal sounds horrible. You have poor occupancy (assuming 33 lots is the target), a bizarre private water system, private sewer, way too high a percentage of park-owned homes, no upside in rents, etc. While CharlesD is correct that price and terms can solve many a problem, this park is so full of danger that I don’t think I’d want it if you gave it to me.If you buy that, right after closing, the seller will laugh for two weeks straight, and then every other day for the rest of his lifetime.

This deal does sound terrible although you have not let us know what exactly the deal is. I would make a offer depending on how large the existing mortgage is, how much they want for the business and what your state tenant regulations are.My offer would be based on 16 lots at $250/month. I would not allow any value for the homes and this would likely be the deal breaker depending on the existing mortgage on the property. I would expect the owner to reject the offer and I would happily walk away informing them the offer stands. If they do not sell within a year I would return and offer the same again.If by some miracle they accepted you would need to put a plan in place to unload all the homes asap. RTO, give them away, rent credit, sell them cheap, what ever works just to get them off your books. Lot rent for every site would be $250 per month and each tenant would also pay a separate $100 per month, state rental regulations permitting, as a water and sewer fee. This would also include the additional fee to the one present home owner. The water/sewer fee would be held in reserve to cover ongoing well and septic costs. If the state does not allow the additional tenant fees I would not purchase this property.Rental income would be $48,000/year. Water and sewer $19,200/year. Additional money from sale of homes would be gravy on the deal. (your monthly water/sewer fee may need to be adjusted.) You may lose your existing home owner but that would be of no concern to me. The rest, assuming they will own their homes for next to nothing, should be more than happy to pay. The only upside to the deal is dependant on the condition of the undeveloped lots. They could be developed slowly over time depending on how long you wish to hold the property.This offer really is a long shot but based on the circumstances of the existing property you have nothing to lose unless you are successful. :)     

Thanks everyone for your responses.  The current asking price is $399k.@Charles:  We were on the same page for price, my thought was in the $250k range.@Carl:  I completely agree that an owner’s time is very valuable. Mine is better served then managing POH rentals, so a good on site manager/maintenance person would be key.  Nothing wrong with being a hands on onsite owner if that’s your cup of tea, it’s just not mine due to my other business.@Frank:  The water setup baffles me.  The area the park is located allows for easy installation of wells due to water depth and soil type.  No idea why they put in so many wells/septic.  This, I feel is a major problem.  Any comments on the idea of dumping the POH as Greg suggested?  @Greg:  I like the idea of dumping the homes for little or nothing and getting the tenants on lot rent plus water/sewer charge.  The state regulations state that the rate charged must be competitive with what a public utility would charge.  That’s easy enough to find out from some of the public water/sewer parks in the area.  I’m not sure yet of the condition of the undeveloped lots or the current mortgage, the seller representative was not sure so this will take further investigation. 

If the state rates are lower than what you need to cover your future well and septic costs you may be forced to increase lot rents accordingly to cover the short fall. Your next problem will be that in turning over the homes to the present tenants at a low dollar amount they may then try and sell to make a profit. This means screening many new tenants but if your rent and water fees are high they may have difficulty selling and be forced to stay.This park will be a interesting challenge in balancing purchase price, financing, selling homes and setting fees. You might try offering a higher price depending on the sellers being able to carry the majority of the mortgage at a low rate. This again depends on the existing mortgage.

Erik, personally I would not do this deal.The areas that I would be concerned about are:-  Well Water:  One Well For Every 2 Mobile Homes-  Conventional Septic Tanks: One Septic Tank For Every 4 Mobile HomesIt is not that I am opposed to Septic Systems.  We own a MHP that has Septic Systems.  However, we have one Septic System per every one Mobile Home (with Tank and Drain Lines based on a 3 Bedroom Home).  In addition we have lots and lots of area to drain the Septic Systems (approximately 1/2 an acre per Mobile Home).We also have City Water billed directly to the Tenant.  Actually, this particular Utility provides both Electric & Water to our Tenants (which is unusual in our area…normally we have a Water Company and a separate Electric & Gas Company).Since we have City Water, we do not have to worry about the Septic Lines being near the Well Water.What I am concerned about is the amount of Mobile Homes sharing one Septic System in addition to the fact that the Water is coming from wells in the same physical location of the Septic Systems.As for the Park Owned Homes I would continue to rent them (if they are good Tenants).  I would not just give them away for a low price to get a ‘Resident’ in there.  Sell the POHs for reasonable Mobile Home Prices to individuals willing to keep them in your MHP for a minimum of so many years.Yes, it is correct that you can not Owner Finance (unless you comply with the Dodd Frank Bill).  However, if your Purchase Price is reasonable, you can find some Tenants to purchase them outright (look at your State Law to see how many you can sell in one year without a Dealer’s License) or you could also do the Rent Credits.We wish you the very best!

The easiest part of that deal, assuming it does well with a test ad, is converting the POHs over from renters to owners, either through small sums of cash as purchase price, or rent/credit on more expensive units. You could probably get them all converted over in 6 months if you really work it right. It’s the other parts of the deal that scare me – not that one.